Summary:

Through some clever political wrangling and well spent lobbying dollars, the regional Bell companies have won the battle for the local telecom customer. They have essentially been able to take all the upside of the 1996 Telecom Act, (long distance) destroyed the competition with their sense […]

Through some clever political wrangling and well spent lobbying dollars, the regional Bell companies have won the battle for the local telecom customer. They have essentially been able to take all the upside of the 1996 Telecom Act, (long distance) destroyed the competition with their sense of inertia, and in face have come out seemingly on top. AT&T has capitulated, and MCI will soon. They simply have FCC in their pocket – no ifs or buts about it.

To recap, the March 2004 decision by a federal appeals court threw out existing rules about how the regional phone companies must make their local phone networks available to competition. To clear up the resulting uncertainty, the Federal Communications Commission is writing new rules that include an automatic 15% increase in wholesale rates. The Bells are individually soliciting state regulators for even-higher rates. The 1996 Telecom Act envisioned a world where numerous companies, including cable companies and other Bells, would compete for business and no one carrier owned more than 50% of the market. The Bells market share today is in the 90%+ range.

In a recent chat, Pete Wilson, CEO of Telwares pointed out that it is only a matter of time before the local competition dies. He also pointed out that though cable and the new VOIP carriers offer an alternative they have minuscule market penetration and once the interest in new phone options goes mainstream, the Bells will simply come in and crush the competition with their marketing and regulatory muscle.

Others have a different point of view. “Voice over any broadband facility – DSL or cable modem – opens the door for any service provider to secure the customer. In a packet world, access and service are separated, and the link is severed,” said Allan Tumolillo, COO of Probe Financial Associates. While most of the people would agree with Wilson, and say that what is going to prevent from the large phone companies to come in and crush everyone else. I have a slightly different take on this, as I pointed out in my earlier piece, the Continuing Telecom Death Spiral.

The telecom industry has thrived in the past because phone companies could charge a few pennies per minute for the local call. Theses flat rate unlimited phone call services are changing the rules of the game to a “fixed price” model. When such a shift happens in any industry, there is a major upheaval and often chaos.

Tumolillo is thinking along the same lines as well. “The telcos are deploying IP networks and will offer these services across the U.S., but there is no ‘lock-in’ of the customer,” said Tumolillo, “and this forces the telcos to consider further price reductions to keep subscribers from ‘breaking the bundle’. Marketing and branding strategy will overwhelm physical asset plays.” While the telcos have achieved a major victory over the long distance carriers, they still confront cable, Vonage and even IP offerings from the weakened long distance carriers such as AT&T, Tumolillo argues and adds, that any of these providers can be the “voice provider” no matter what broadband access connection a subscriber uses.

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